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Political Risk Premium Conspires Against GBP

FOREX
  • Risk appetite has stabilised, however equities remain below the better levels of the Wednesday session, keeping the e-mini S&P near support of 3677.00. Government bond yields continue to creep higher, however, with the US 10yy hitting a new cycle high of 4.1778% in early European trade.
  • Meanwhile, GBP remains heavy given the overwhelming political risk premium, with reports suggesting the UK could have a new Prime Minister by the end of the day. Reports are conflicting, with some seeing Truss forced out of office as soon as today, while others argue for a stay of execution until October 31st in order to press on with the much-needed fiscal policy U-turn. GBP is the poorest performer in G10, with GBP/USD narrowing the gap with weekly lows of 1.1148 just ahead of the NY crossover.
  • Adding to GBP pressure were somewhat dovish comments from BoE's Broadbent, who commented that "Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen."
  • At the other end of the table, EUR trades well, higher against most others as the currency continues to benefit from the downdraft in energy prices. European natural gas prices remain under pressure, close to the lowest levels since June and confirming the late summer price-spike has likely concluded.
  • Focus turns to the US weekly jobless claims data as well as existing home sales for September. Fed's Harker, Jefferson, Cook and Bowman are all on the docket.
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